Bounce back: commercial property in Ireland presents solid investment opportunities
International property investors around the world will have now seen the news, announced on September 7, that a large part of Facebook’s European headquarters in the Ballbridge area of Dublin was up for sale. [www.irishtimes.com/business/commercial-property/investors-seek-395m-from-sale-of-stake-in-facebook-s-dublin-4-hq-1.4667203]
But whoever comes in for the property will need deep pockets – the guide price for the site is €395 million.
The sale of the site – which comprises more than 339,000sq ft of office space across four blocks – has been anticipated for some time. It is being sold on behalf of the Serpentine consortium, a syndicate of private individuals and companies, according to the Irish Times. The site is part of the 900,000 sq ft Facebook campus, which is currently being built.
With a net yield of more than 4% anticipated, according to Cushman & Wakefield, which is handling the disposal for Serpentine, there is likely to be substantial interest from around the world.
This news demonstrates the buoyancy of the commercial property sector in Ireland currently, as the sector has bounced back from the effects of the COVID-19 pandemic in 2021.
Last year, commercial property deals worth just over €2 billion were completed in Ireland, according to figures from Cushman & Wakefield [www.cushmanwakefield.com], with €861 million of that coming in the final quarter of the year.
This figure was understandably down on recent years, sitting at about the same level in terms of volume and value seen in 2013, but it wasn’t disastrous.
However, after a slow start to 2021 when Ireland was subject to another COVID-related lockdown, the commercial property market has notably picked up in the second quarter of the year. In all, 46,350 sq m was reserved in the second quarter, compared to less than 20,000 sq m in the first three months of the year. The total reserved space in the market was 86,450 sq m, the most since the first quarter of 2020, just before the pandemic hit, according to Cushman Wakefield.
Also in the first half of the year, there have been a raft of prime commercial properties hitting the market such as the Eyre Square Shopping Centre in Galway city. US investment firm Marathon Asset Management has put the centre up for sale, with a guide price of €12.75 million. It is expected to receive interest from international investors, according to the Irish Times. [www.irishtimes.com/business/commercial-property/eyre-square-shopping-centre-at-12-75m-offers-buyer-7-34-yield-1.4655119]
Another positive sign is that construction work is also picking up pace again. At the end of June, there was more than 420,000 sq m of space under construction, 8.6% up in the quarter, with work commencing in four locations, again according to Cushman Wakefield.
Meanwhile, rent rates remained largely static between April and June at €656 per sq m. That said, there are changes in terms, which impacts net effective rents.
At the end of June, international real estate business Hines formally bought the second phase of the Chatham & King development in central Dublin. Hines had initially agreed a €165 million deal to buy the development in 2018.
The Chatham & King portfolio, which spans 42,500 sq ft, was bought on behalf of the Hines European Core Fund (HECF). It comprises six residential units, five retail units and 26,500 sq ft of office space, which will be occupied by data analytics management firm, Qualtrics, which already has its European headquarters in the adjoining 31,000 sq ft office.
Lone Star Funds has recently completed the construction of the building, which is on Chatham Street and Clarendon Row, adjacent to Grafton Street and St. Stephen’s Green, in the heart of Dublin’s central shopping area.
Simone Pozzato, managing director and deputy HECF fund manager at Hines, said the acquisition of Phase 2 of Chatham & King completes the final element of this portfolio. “The property is an excellent fit for HECF given its central location in Dublin, a city which continues to show strong economic growth,” he said. “We are already encouraged by the promising engagements to date from some very exciting retail brands who would be ideally suited to this prestigious shopping district. We hope to have further announcements in this regard in the near future.”
There have also been investments in commercial property announced around the country. For instance, in August technology company Bosch announced plans to establish an Automotive Research and Development Centre in Limerick, creating 30 jobs over the next two years. The Centre will primarily focus on semiconductor products and automotive electronics.
Investing in commercial property in Ireland
As mentioned, there is plenty of international interest in investing in commercial property in Ireland. While the sector is relatively small compared to some other EU countries and the UK, prices are relatively reasonable; even in Dublin there isn’t a large premium on the price of office space or other types of business premises.
The market is also relatively stable – pandemics aside – which means that commercial property prices are not generally subject to volatility, giving some security to investments. Likewise, leases on property in Ireland tend to be longer than those found in other European countries, which gives more security to rental yield levels.
There is also consistent demand for commercial property. Ireland has long been a destination for international corporations in many sectors looking to establish a European base – as Facebook shows – and this will, if anything, accelerate now that the UK is out of the European Union and so looks relatively less appealing as they don’t have access to the single market.
The stability of the commercial property sector in Ireland was demonstrated last year as deal volumes didn’t plummet, and since then how the sector has gradually recovered.
With properties coming onto the market, as well as construction ramping up again now that the lockdowns are – we assume – over, the pipeline for future deals is set fair for the remainder of 2021 and into 2022 and beyond.
With many companies now operating close to normal, there will be more businesses looking to move to new offices – perhaps enacting plans that have been on hold for the past 18 months – that should provide an added boost to the sector. Consequently, there will be a steady throughput of investment and acquisition opportunities for investors from inside and outside of Ireland.
If you are looking to invest in commercial property in Ireland, then it is crucial to get local, expert advice as the process can be complicated. If an investor doesn’t complete an in-depth investigation of the opportunity, the risk of the investment making a loss is increased.
There are numerous aspects that need to be considered and undertaken before signing off on an investment. For instance, full due diligence should be undertaken of all the legal contracts, including leases, boundaries, stamp duty and the like.
Investors should also get advice and undertake due diligence on the tax, capital gains tax and VAT implications of the deal. This includes analysing the cost of the investment, the potential rental yield – and the costs on the rental income – and what impact capital gains tax could have on the returns on the investment. Also, the potential impact of VAT on sales, letting etc needs to be explored.
Of course, structural surveys should also be conducted, investigating all aspects of the property, including water and heading systems and any contents of it, if that is included. If any issues are raised in this, they will need to be resolved before contracts are signed.
Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects such as providing diligence services as part of a deal. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset. Remember, while Ireland may share a land border with the UK, the regulatory regimes can be quite different, which can trip up unwary investors.